2017’s Tax Rates by State

Mar 14, 2017 | John S Kiernan, Senior Writer & Editor

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Tax season can be stressful for many Americans, especially those who owe money to Uncle Sam. Every year, the average U.S. household pays more than $5,700 in federal income taxes, according to the Bureau of Labor Statistics. And while we’re all faced with that same obligation, there is significant disparity when it comes to state and local taxes. Taxpayers in the most tax-expensive states, for instance, pay three times more than those in the cheapest states to meet their civic burden.

As this year’s tax-filing deadline, April 18, looms closer, it’s fair to wonder which states have the most and least burdensome tax rates. WalletHub’s analysts searched for answers by comparing state and local tax rates in the 50 states and the District of Columbia against national medians. To illustrate, we calculated relative income-tax obligations by applying the effective income-tax rates in each state and locality to the average American’s income. Scroll down for the complete ranking, commentary from a panel of tax experts and a full description of our methodology.

*Assumes “Median U.S. Household” has an annual income of $54,286 (mean third quintile U.S. income); owns a home valued at $178,600 (median U.S. home value); owns a car valued at $23,070 (the highest-selling car of 2016); and spends annually an amount equal to the spending of a household earning the median U.S. income. **National Average of State and Local Tax Rates = 10.72%.***Assumes “Median State Household” has an annual income equal to the mean third quintile income of the state; owns a home at a value equal to the median of the state; owns a car valued at $23,070 (the highest-selling car of 2016); and spends annually an amount equal to the spending of a household earning the median state income.

Red States vs. Blue States

State & Local Tax Breakdown

All effective tax rates shown below were calculated as a percentage of the mean third quintile U.S. income of $54,286 and based on the characteristics of the Median U.S. Household*.

State

Effective Real-Estate Tax Rate

Real-Estate Tax Rank ($)

Effective Vehicle Property Tax Rate

Vehicle Property Tax Rank ($)

Effective Income Tax Rate

Income Tax Rank ($)

Effective Sales & Excise Tax Rate

Sales & Excise Tax Rank ($)

Effective Total State & Local Tax Rates on Median U.S. Household*

Alabama

1.42%

2($773)

0.32%

29($174)

2.68%

28($1,454)

5.01%

39($2,720)

9.43%

Alaska

3.89%

33($2,112)

0.00%

1($0)

0.10%

6($54)

1.65%

4($894)

5.64%

Arizona

2.66%

18($1,446)

0.71%

37($388)

1.57%

13($850)

4.66%

35($2,527)

9.60%

Arkansas

2.05%

10($1,111)

0.44%

31($240)

2.66%

27($1,444)

7.13%

50($3,871)

12.28%

California

2.65%

17($1,438)

0.28%

28($150)

1.40%

11($760)

4.47%

30($2,426)

8.79%

Colorado

1.98%

8($1,073)

0.76%

40($412)

2.54%

25($1,377)

4.07%

24($2,210)

9.34%

Connecticut

6.48%

48($3,517)

1.02%

48($555)

2.25%

19($1,222)

3.81%

18($2,067)

13.56%

Delaware

1.77%

4($959)

0.00%

1($0)

3.03%

33($1,645)

1.27%

3($689)

6.07%

District of Columbia

1.84%

5($1,000)

0.00%

1($0)

3.72%

46($2,018)

4.44%

28($2,410)

10.00%

Florida

3.49%

27($1,894)

0.00%

1($0)

0.00%

1($0)

5.45%

44($2,957)

8.94%

Georgia

3.10%

25($1,685)

0.00%

1($0)

3.17%

35($1,721)

4.30%

26($2,333)

10.57%

Hawaii

0.90%

1($487)

0.00%

1($0)

3.85%

47($2,090)

5.59%

46($3,033)

10.33%

Idaho

2.52%

14($1,366)

0.00%

1($0)

2.13%

16($1,154)

3.84%

20($2,085)

8.48%

Illinois

7.56%

50($4,105)

0.00%

1($0)

2.82%

30($1,531)

4.37%

27($2,375)

14.76%

Indiana

2.87%

23($1,560)

0.55%

34($300)

3.71%

45($2,014)

4.73%

36($2,570)

11.87%

Iowa

4.88%

38($2,649)

0.42%

30($231)

3.03%

34($1,646)

4.50%

31($2,443)

12.84%

Kansas

4.61%

37($2,502)

0.77%

43($416)

1.78%

15($968)

5.12%

40($2,779)

12.28%

Kentucky

2.78%

19($1,511)

0.53%

32($288)

4.87%

51($2,645)

3.83%

19($2,079)

12.01%

Louisiana

1.61%

3($876)

0.04%

25($23)

2.17%

18($1,181)

6.50%

49($3,529)

10.33%

Maine

4.28%

35($2,321)

1.02%

47($554)

2.54%

26($1,379)

3.80%

17($2,062)

11.63%

Maryland

3.60%

30($1,956)

0.00%

1($0)

4.30%

49($2,332)

4.02%

23($2,182)

11.92%

Massachusetts

3.94%

34($2,139)

0.96%

45($519)

3.67%

44($1,992)

2.95%

6($1,603)

11.52%

Michigan

5.84%

44($3,172)

0.26%

27($142)

3.32%

37($1,801)

3.58%

11($1,942)

13.00%

Minnesota

3.89%

32($2,110)

0.55%

33($299)

2.94%

32($1,597)

4.21%

25($2,285)

11.59%

Mississippi

2.59%

15($1,408)

1.42%

49($773)

2.34%

21($1,269)

5.78%

47($3,139)

12.14%

Missouri

3.30%

26($1,790)

0.82%

44($443)

2.91%

31($1,582)

3.99%

22($2,166)

11.02%

Montana

2.81%

22($1,525)

0.16%

26($86)

2.76%

29($1,501)

1.16%

2($629)

6.89%

Nebraska

6.09%

45($3,308)

0.61%

36($331)

2.53%

24($1,373)

4.57%

32($2,481)

13.80%

Nevada

2.81%

20($1,523)

0.73%

39($398)

0.53%

8($288)

3.59%

12($1,949)

7.66%

New Hampshire

7.07%

49($3,838)

0.76%

41($415)

0.60%

9($326)

1.65%

5($896)

10.09%

New Jersey

7.72%

51($4,189)

0.00%

1($0)

1.40%

11($760)

3.51%

9($1,905)

12.63%

New Mexico

2.44%

12($1,324)

0.00%

1($0)

2.16%

17($1,173)

6.13%

48($3,329)

10.73%

New York

5.34%

41($2,899)

0.00%

1($0)

3.49%

40($1,893)

4.75%

37($2,577)

13.58%

North Carolina

2.81%

21($1,524)

0.56%

35($302)

3.62%

43($1,965)

3.65%

15($1,981)

10.63%

North Dakota

3.68%

31($2,000)

0.00%

1($0)

0.78%

10($421)

5.58%

45($3,026)

10.03%

Ohio

5.15%

40($2,794)

0.00%

1($0)

3.34%

38($1,813)

4.57%

33($2,481)

13.06%

Oklahoma

2.89%

24($1,569)

0.00%

1($0)

2.44%

23($1,325)

5.37%

42($2,915)

10.70%

Oregon

3.55%

28($1,929)

0.00%

1($0)

4.74%

50($2,570)

0.93%

1($505)

9.22%

Pennsylvania

5.02%

39($2,725)

0.00%

1($0)

3.90%

48($2,117)

3.40%

8($1,848)

12.33%

Rhode Island

5.37%

42($2,915)

2.03%

51($1,100)

2.30%

20($1,249)

3.88%

21($2,105)

13.57%

South Carolina

1.88%

6($1,019)

1.01%

46($546)

2.35%

22($1,276)

3.61%

14($1,960)

8.84%

South Dakota

4.40%

36($2,389)

0.00%

1($0)

0.00%

1($0)

5.37%

41($2,914)

9.77%

Tennessee

2.46%

13($1,335)

0.00%

1($0)

0.10%

6($54)

5.41%

43($2,937)

7.97%

Texas

6.24%

46($3,386)

0.00%

1($0)

0.00%

1($0)

4.88%

38($2,649)

11.12%

Utah

2.24%

11($1,218)

0.00%

1($0)

3.35%

39($1,820)

3.65%

15($1,981)

9.25%

Vermont

5.74%

43($3,116)

0.00%

1($0)

1.61%

14($872)

3.55%

10($1,925)

10.89%

Virginia

2.62%

16($1,420)

1.78%

50($966)

3.49%

41($1,896)

3.00%

7($1,631)

10.89%

Washington

3.56%

29($1,931)

0.00%

1($0)

0.00%

1($0)

8.16%

51($4,432)

11.72%

West Virginia

1.92%

7($1,044)

0.72%

38($392)

3.29%

36($1,785)

4.44%

29($2,413)

10.38%

Wisconsin

6.45%

47($3,499)

0.00%

1($0)

3.56%

42($1,933)

3.60%

13($1,953)

13.60%

Wyoming

2.02%

9($1,097)

0.76%

41($415)

0.00%

1($0)

4.65%

34($2,524)

7.43%

*Assumes “Median U.S. Household” has an income equal to $54,286 (mean third quintile U.S. income); owns a home valued at $178,600 (median U.S. home value); owns a car valued at $23,070 (the highest-selling car of 2016); and spends annually an amount equal to the spending of a household earning the median U.S. income.

Ask the Experts: Best Tax Advice

For more insight into the impact state and local taxes have on migration and public policy, we turned to a panel of leading tax and policy experts from colleges and universities across the U.S. You can check out their bios and responses below.

Do people consider taxes when deciding where to live? Should they?

How can state/local tax policy be used to attract new residents and stimulate growth?

Which states have particularly complicated tax rules for families?

How has the total amount families pay in state and local taxes changed as a result of the Great Recession?

Sarah E. Larson

Assistant Professor in the School of Public Administration at University of Central Florida

Do people consider taxes when deciding where to live? Should they?

Research has shown that many individuals are not aware of basic tax information, such as the rates of state (and/or local) income tax and local property tax millage. As a result of lack of knowledge, most individuals consider other factors when deciding where to live, such as a proximity to high performing school districts or proximity to public transportation.

Taxation at the local level often times provides for direct services received by citizens, such as public K-12 education, garbage collection, and snow removal. Therefore, individuals should consider the spending priorities of the municipality they are considering during relocation, but other factors may direct relocation area decision such as personal and monetary considerations (availability of job, commute time, family obligations).

How can state/local tax policy be used to attract new residents and stimulate growth?

Factors that may drive the selection of a municipality as a desirable location for relocation of families and/or businesses (high ranking public schools, access to public transportation, roads free of excessive traffic) are often funded in part or fully by state and local tax revenue. Supplemental tax policy in particular localities have further spurred economic growth. For example, business owners within metro Atlanta, Georgia have employed the state tax policy of the creation of community improvement districts (CID) to further spur residential and commercial growth. Through the additional property taxation of commercial property within these districts, the CID provides supplemental governmental services such as matching funds for transportation projects and supplemental security patrols to local police, making the areas appealing for residential and commercial growth.

How has the total amount families pay in state and local taxes changed as a result of the financial crisis?

Due to the financial crisis, property values decreased in most municipalities across the United States. As the property tax is based upon the assessed value of the property, many families saw a reduction in their property tax
bills during the financial crisis. Similarly, the financial crisis corresponded with an increase in unemployment rates. Due to an increase in unemployment rates, the taxable income of individuals went down, leading to a decrease in state and, potentially local, income tax collections. Therefore, many families saw a decrease in their absolute tax bill as a result of the financial crisis.

Should people pay taxes based on where they live or where they work?

The decision of the location of taxation depends on the nature of the purpose of the particular tax policy. For example, an individual drive on a toll road during a daily commute to work -- the individual should be subject to the tax per use of the road to get to work. The individual is receiving a direct benefit from the toll or taxation of the road, through improved road quality, increased signage, or other factors that improve the quality of the road for the consumer. In contrast, an individual should be taxed for direct services (trash collection, snow removal, lamp posts, etc.) in the location he/she receives those services, which is often where the individual lives. As the individual has a direct benefit in on time trash collection, clean roads after snow storms, and lighting on the block of his/her home, that taxation should be collected at the location of living.

David R. Agrawal

Assistant Professor in the Martin School of Public Policy and Department of Economics at University of Kentucky

Do people consider taxes when deciding where to live? Should they?

Recent research on tax-induced migration suggests that although many things matter for where people live, taxes appear to be an important factor for high-income individuals. Taxes also affect international location decisions for high-income groups; for top income individuals, taxes matter when deciding where to live across international borders and in within other countries. However, some research finds that although migration is responsive to income tax rates, the magnitude of the migration response is small relative to the population and thus has little effect on the tax base. In part, the response to taxes by high-income households is partially a result of these households paying more in taxes than they receive in benefits or services from those jurisdictions.

For middle class households, however, the role of spending becomes more important. These households may consume more in public services than the taxes paid and for this reason, although taxes may matter, the provision of government services is also very important when deciding where to live. This includes the level of services provided and the mix of services. For example, at the local level, schools are an important determinant of where to live within a city or area of the state. For this reason, it is important to think about the role of both taxes and government spending when deciding where to live and not just the level of taxes.

Should people pay taxes based on where they live or where they work?

The majority of Americans live and work in the same state, however, 75 million Americans live in metropolitan areas that cross state borders (such as New York City or Philadelphia) and thus have some choice over which state they want to work in and which state they want to live in. The treatment of personal income for individuals with interstate commutes depends on the tax treaties in place. When states have signed reciprocity agreements, taxes are primarily paid to the state of residence. When states do not have reciprocity agreements, the tax treatment of income could have an employment and residence based component. How people should be taxed would thus depend, in part, on the relative sensitivity of businesses (employment) versus people (residence) to the tax differentials. We generally believe that businesses will be more mobile than people, but this may depend on a person's income.

Recent research shows commuting times adjust in response to state tax differentials, but the nature of the response depends on whether taxes are purely residence based or if they have an employment based component. High-income households and jobs seem to be most responsive, but the evidence suggest that the response of employment is larger. Thus, whether people pay taxes based on where they live or work has implications on where people locate, but also on where new businesses start up. This results in longer commutes in order to avoid high state income taxes.

Issues of where taxes should be paid are also important to other taxes, such as state and local sales taxes, especially with the recent rise in e-commerce. As argued in research studies, the case for taxing consumption at its destination rather than where the good originates from remains strong; this has been supported by recent recommendations of the OECD.

Elizabeth Jane Beckett-Camarata

Senior Lecturer in Public Administration at Pennsylvania State University

Do people consider taxes when deciding where to live? Should they?

To a certain degree, people do consider taxes when deciding where to live. Part of the decision is dependent, to a certain extent, on factors such as the age, income and marital status of the individual at the time of the decision. For example, there are different state tax rules on pension income. Some states do not tax pension income, and other do. That can and should influence where retirees choose to live North Carolina exempts all Social Security retirement benefits from income taxes. Other forms of retirement income are taxed at the North Carolina flat income tax rate of 5.75%. Additional taxes seniors and retirees in North Carolina may have to pay include the state's sales and property taxes, both of which are moderate.

Individuals, who are reasonably well-informed, can access the Comprehensive Annual Financial Report (CAFR) for their state and/or local government to find data on the types of taxes collected in their state and/or local government. Often a state or local government provides a Popular Annual Financial Report (PAFR) which provides a citizen-friendly explanation of state or local taxes.

How can state/local tax policy be used to attract new residents and stimulate growth?

State/local tax policy should be targeted to the specific overall economic policy goals of the state/local government. In thinking about economic policy goals, questions such as: What specific economic policy goals are the local government trying to achieve? For example, to attract new businesses; to bring the “middle class to the downtown area to live and/or work”; to attract trained and highly skilled workers. The tax policy needs to be aimed at what will bring the best mix of people (and employers) to the community.

Also, another important policy issue to attract new residents and stimulate growth is the mix of taxes (sales, income, property), and so the tax policy also involves attention to the overall mix of taxes. Government needs adequate tax revenue to pay for needed goods and services. If property taxes are high, then they should be balanced, for example, with moderate income taxes. If used and applied appropriately within the overall tax policy, tax incentives can also aid in attracting new residents and businesses at both the state and local government levels.

Which states have particularly complicated tax rules for families?

Since the term “family” is very complicated in itself and different states have varying economic policy goals, application and complexity of tax rules in each state and local government varies.

Forty-three states levy individual income taxes. Forty-one tax wage and salary income, while two states, New Hampshire and Tennessee tax dividend and interest. Seven states do not levy income taxes. Of the states which tax wages, eight have single-rate tax structures, with one rate applied to all taxable income. Two states, California and Missouri each have 10 tax brackets. Marginal tax rates go from 2.9 percent in North Dakota to 13.3 percent in California. In some states, tax brackets are clustered in a limited income grouping. Missouri taxpayers attain the state’s highest bracket at $9,072 while in other states such as New Jersey, the top marginal tax rate applies at $500,000 (Tax Foundation, 2017).

States’ approaches to taxation of families’ income vary in complexity. Some states double their income tax single-bracket widths for married filers to avoid the “marriage penalty.” Some states index tax brackets, exemptions, and deductions for inflation; many others do not. Some states tie their standard deductions and personal exemptions to the federal tax code, while others either set their own or offer none at all.

How has the total amount families pay in state and local taxes changed as a result of the financial crisis?

The relative tax burdens borne by different income levels changes over time due to both economic conditions and fluctuating provisions of tax law. The federal government continues devolution of responsibilities to states and from states to local governments, resulting in numerous and increasing unfunded mandates. Consequently, there is more and more responsibility being shifted to the state and local level, which translates to higher state and local costs and expenses.

With higher state and local costs and expenses, the real question is: to tax or to borrow (or both)? Since the 2008 financial crisis, overall we see greater reduction in some government services, increased state and local government borrowing, especially long-term borrowing, and even more use of complicated debt instruments such as derivatives and/or increased use of user fees to fund government services. Following the 2008 financial crisis, we have also seen greater population and demographics shifts and change in certain parts of the country with many single industry towns and villages becoming less viable in the changing economy.

Which states have the best mix of taxes and government services?

The optimal mix of taxes and services is one in which citizens are receiving the appropriate mix of government services they need with the least amount of taxation imposed. When we vote for a candidate for public office, we do
not get to pick and choose what services we are voting for, but rather have vote for and ultimately pay for a “bundle of services” which the candidate supports, some of which we may use frequently, and some we may never use. So, the “best mix” of taxes and government services depends on the prevailing philosophy of the state and local government, and how closely that philosophy actually reflects the needs (and sometimes “wants”) of the citizens in the community, the economic priorities as well as the need to balance the budget. Is the prevailing philosophy of the state government one of smaller government, fewer services and relatively lower tax rate, or a wider range of government services and relatively higher tax rate?

Should people pay taxes based on where they live or whey they work?

It should be both but applied equitably. People use government goods and services in the area where they work, for example, they ride the subway or Metro (which is normally subsidized), they use public safety services such as
police and/or fire if needed, and so they should also contribute to the cost of those services. But they should not be expected to be taxed for such expenses as schools. They should pay taxes where they live because to a greater degree they use government services in the area where they live.

Although the questions posed are focused on tax revenue, people should also consider the amount of and type of debt that the state/local government has already incurred, in addition to the current mix of taxes and the ratio of
income per capita to debt per capita. Communities, who tax “now” and do not carefully plan for the future cost of their community’s accumulated debt (debt burden) will be saddled in the future with higher taxes to pay for the ever increasing debt, if that debt is not managed properly.

Minchin G. Lewis

Adjunct Professor of Public Administration and International Affairs in The Maxwell School at Syracuse University

Do people consider taxes when deciding where to live? Should they?

People consider taxes, but they consider many other factors before taxes. Jobs are the primary issue with differences determined by local economic dynamics. Mega-cities like New York, Boston, Washington DC, Chicago, and Los Angeles have expanding economies. Professionals and skilled workers can migrate to those metro areas speculating on landing a job. We might add cities with distinctive life-styles like San Francisco or with particular attractions like climate. But relocating based on employment is way ahead of tax considerations in other cases. After the decision to relocate, schools, public safety, quality of life, and cultural opportunities come before taxes. Taxes enter the picture when it comes to the economics of housing decisions. The higher the total tax burden, the lower the mortgage a buyer will secure. So even though taxes may not be the first consideration, taxes cannot be ignored.

How can state/local tax policy be used to attract new residents and stimulate growth?

State and local tax policy can be used to promote growth and, thereby, attract new residents. Unfortunately, economic development in the American system is a zero-sum game on a regional basis. Some communities have figured this out and created regional economic development agencies. They are able to promote strategic alliances that leverage state and local tax policy to achieve competitive wins in the economic development game. “Cluster development” is the emerging strategy. Regions identify specific industry strengths and direct marketing towards building supportive industry supply chains. Tax policy is one tool that economic development agencies use to improve their competitive position. Growing economies generate job opportunities. And job opportunities attract new residents.

Which states have particularly complicated tax rules for families?

Happily, this may not be a heavy-duty consideration. In the 1970’s, when software vendors were struggling to create payroll and tax computer programs, the complexity of state regulations was a challenge. Today, not so much. Any number of user-friendly programs are available online to make the calculations “no-brainers.” Even the IRS has a package. They offer “plug and pay” answers for any prospective taxpayers considering state location differences.

How has the total amount families pay in state and local taxes changed as a result of the financial crisis?

Reports from the Rockefeller Institute and the Census Bureau indicate that states have not fully recovered from the 2008 downturn. The amount families pay in state taxes is largely dependent on the economy—higher growth leads to higher income taxes. Local property taxes are less flexible, dependent on static measures like the assessed value of taxable property. States have reduced spending in response to shrinking revenue. So it is difficult to assess the impact that the financial crisis has had on families. But all of these factors will be affected by changes in tax policy from the federal level. Major tax reductions called for by the Trump administration may be accompanied by major cut-backs in federal aid to states. Those adjustments may be offset by increases in state taxes.

Which states have the best mix of taxes and government services?

This is a question of value. Value is determined by the quality, quantity, timeliness, and cost of services. In the public sector, cost is a factor of taxes—mainly, income, sales, and property taxes.

A recent WalletHub report is a good source for estimating the overall tax burden by state as a percentage of personal income. On the service side, the US Census Bureau maintains data on state and local government revenue and spending by service category. The judgment about the “best mix” is based on personal preferences. For instance, for a family with school-age children, state spending on education may be the most significant measure. But for a family with aging parents, health care spending may be more important. Hopefully, these two sources can provide data for very personalized research and decision-making about the “best mix” of taxes and services.

Should people pay taxes based on where they live or where they work?

This question comes from a political debate that pits cities against suburban communities. Cities developed during industrialization up to perhaps, 1950. The economic factors of supply and demand—the American way—created densely populated neighborhoods, with residents living close to employment centers. However, during the post-industrial phase, the methods of production changed. Industry valued low-density sites. At the same time, the out-migration from industrialized cities built the suburban communities that are part of the American landscape today. Along with the industries and residents, the cities lost the economic resources to provide needed services. They also inherited the population left behind with the greatest needs. In many cases, the cities retained major employment centers with educational, medical, and governmental facilities. Suburban residents use city services like roadways, public safety, and many tax-exempt properties. The question is, “Shouldn’t they pay for the services?” The answer is, “They already do.” As resources declined, city governments shifted the burden for local government services to other revenue sources like sales taxes and state aid. Taxpayers in higher income suburban areas contribute substantially to those alternate sources. Due to the tremendous mobility of urban society—living in one place and working in another—it is not possible to implement a true “fee for service” approach that would link the amount individuals pay for public services with the actual services they receive. For better or worse, residents in an urban American community truly are “all in one boat.” The response should be to modernize local government on a metropolitan or regional base.

Samuel B. Stone

Assistant Professor of Public Administration at California State University - Fullerton

Do people consider taxes when deciding where to live? Should they?

At the state level, most people do not. Employment and family (as well as cost of living) are the overriding determinants of residential decisions for most households. Only very wealthy households have the ability select their residential locations based on tax liability. I imagine that their accountants and attorneys provide valuable advice in this area. When it comes to local government, large differentials in local income tax rates seem to affect locational decisions for a larger number of households.

How can state/local tax policy be used to attract new residents and stimulate growth?

Again, with the exception of very wealthy households, tax policies have little direct effect on where people live. Tax policies that stimulate growth are those that produce adequate revenues to pay for public goods and services and that do not have rates that are much greater than neighboring jurisdictions.

Which states have particularly complicated tax rules for families?

I’m not aware of any. In general, family structure is one of the simpler portions of income tax codes.

Which states have the best mix of taxes and government services?

I imagine that different people and different industries will have very different ideas of what “best” means.

Should people pay taxes based on where they live or where they work?

Both, and they already do. Since people consume public goods and services at their residences and their workplaces, it makes sense for them to pay for them in both places.

Carla Flink

Assistant Professor in the Department of Public Administration and Policy at American University

Do people consider taxes when deciding where to live? Should they?

Individuals do factor in some of the larger or well-known taxes, like the property tax rate or whether a state has an income tax. However, state and local governments have a variety of taxes and user fees to generate funds. One way or another, individuals will pay taxes. By some metrics, it is actually advantageous for governments to use multiple types of revenue sources -- diversifying revenue sources can protect the government from losing significant funds if one stream of revenue becomes less productive.

How has the total amount families pay in state and local taxes changed as a result of the financial crisis?

Both state and local governments experienced a decrease in revenue as a result of the financial crisis. In order to provide basic public services and balance the budget, state governments had to generate more funds. They utilized strategies such as raising tax rates, increasing user fees, and eliminating tax exemptions to increase their overall revenue. Families likely felt the impact of the tax rate increases applied to the personal income tax or sales tax. However, not every state applied these types of tax increases, and those that did, may have made the increase temporary as opposed to a permanent change.

Which states have the best mix of taxes and government services?

This comes down to individual preferences and lifestyle. Each state has to craft tax systems that generate enough funds to provide the types of public goods and services their citizens want and need. The relationship between government and citizens is constantly evolving.

Carl Hosticka

Associate Professor Emeritus at University of Oregon

Do people consider taxes when deciding where to live? Should they?

Individuals may consider taxes while making decisions about where to live in retirement. They also may consider taxes when deciding where to locate in a metropolitan area with various jurisdiction that have differing property tax rates. Other than that, I believe that taxes are far down on the list of factors in decisions about where to live and raise a family.

How can state/local tax policy be used to attract new residents and stimulate growth?

By using revenues to provide quality public services, especially educational. People do make location decisions based on the quality of schools, the safety of communities, the quality of the transportation system, and other amenities such as parks.

How has the total amount families pay in state and local taxes changed as a result of the financial crisis?

Not much per family. As a sector, individuals have been assuming a larger and larger portion of the tax burden as corporations find ways to minimize their tax liability and governments use the tax code to attempt to affect corporate decision making.

Which states have the best mix of taxes and government services?

Minnesota has the best mix of taxes and government services.

Should people pay taxes based on where they live or where they work?

Both. It is hard to disaggregate the government services people receive and assign responsibility for payment based on domicile or place of work.

Elizabeth Plummer

Professor of Accounting in the Neeley School of Business at Texas Christian University

Do people consider taxes when deciding where to live? Should they?

Yes, people do consider taxes when deciding where to live. Taxes are a cost of living in a particular locale, so like all costs, it is appropriate and prudent to consider them. I do not believe many persons would move somewhere without considering the cost of housing or commuting. Why would we think taxes should be any different?

It is important to remember that there are a variety of taxes to consider, including the income tax, property tax, sales tax, and excise taxes (e.g., gas, alcohol, tobacco, cell phones), as well as taxes on business entities for individual business-owners. And each of these taxes can be levied at the state level, the local level, or both.

It is also important to consider what goods and services your taxes are buying -- both in terms of quantity and quality. How good are the school districts? How good are the roads and bridges? The police and fire departments? If your taxes are low, but your services (or service-quality) are low, then low taxes are not necessarily a good thing.

Of course, some residents may not be concerned (or be relatively less concerned) about a particular service. For example, persons with no children may not necessarily care about high-quality schools, except to the extent that school quality is reflected in home prices and resale value. Persons who work at home (or close to home) may not be as concerned as regular commuters about good freeways and bridges.

How can state/local tax policy be used to attract new residents and stimulate growth?

Tax incentives are consistently used to attract new residents and businesses. Incentives can be targeted at a specific industry (e.g., manufacturing, technology, the movie industry), or incentives can be geographically-targeted to reduce taxes on businesses that locate in a particular place (e.g., enterprise zones, tax increment financing districts). States and municipalities often use tax abatements to attract a particular taxpayer. For a good example, see this article.

Localities often assess taxes on non-residents through taxes on items such as hotels and rental cars. While it shifts taxes to non-residents (and thus non-voters), it could also decrease a city’s ability to attract tourism-related business, including conventions.

States and local governments often have “sales tax holidays,” whereby specific goods are tax-exempt for a period of time (e.g., a weekend of back-to-school spending on clothes and school-related items). Whether these tax holidays actually increase spending -- relative to what consumers would have purchased without the tax holiday -- is questionable.

When evaluating tax policy, it is important to consider what you are paying (i.e., taxes) and what you are receiving (i.e., the goods and services provided by the government). It is also important to remember that taxes are ultimately paid by someone. Taxes shift costs among and across taxpayers. There is no free lunch when considering the tax burden across all taxpayers.

This website provides detailed information on economic development tax incentives.

Which states have particularly complicated tax rules for families?

I live in Texas, which does not have a state income tax. That makes it quite simple.

Which states have the best mix of taxes and government services?

I refer you to this website for excellent and detailed information on state taxes and government services.

Cleopatra Charles

Associate Professor in the School of Public Affairs and Administration at Rutgers University - Newark Campus

Do people consider taxes when deciding where to live? Should they?

Generally speaking, the average individual is not well informed about taxes and state fiscal issues and most people do not consider taxes when moving across states. Of course, there are exceptions to this and the very wealthy are one exception. There is a reason why a number of billionaires and even some millionaires have left states like New Jersey and New York and moved to Florida for example. Not only is the weather better in Florida but also Florida has no state income tax. In addition, New Jersey is one of two states in the country that has both an estate tax and an inheritance tax making it a very inhospitable state for a parent or grandparent thinking of passing on wealth.

Should people consider taxes when deciding where to live? Absolutely! For folks thinking about retirement, Alaska and New Hampshire have no state income tax or sales tax and more importantly, no levy on social security income. Although Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming impose a sales tax, your social security and pension income will be safe in those states and not subject to a levy or state income tax.

Should people pay taxes based on where they live or where they work?

Yes, people should pay taxes based on where they live and where they work. An employee who works in one state and lives in another state enjoys benefits, services and protection from both states and therefore should share in the cost for providing these benefits and services in both states. For example, someone who lives in state A and gets 50% of his/her income in state B does not get 50% of a police officer after being robbed at his residence. He/she gets the same level of service and protection as a neighbor who lives and works in state A.

Theodore Arapis

Assistant Professor of Public Administration at Villanova University

Do people consider taxes when deciding where to live? Should they?

Not sure that everyone does, but they should. Taxes have a great impact on our day-to-day life and well-being. While taxes reduce our disposable income, they could also guarantee the provision of high quality services (e.g., k-12 education, infrastructure, public safety). Overtime, such services may add value to residential or commercial properties and hence improve the return of investment. Therefore, it is critical that taxpayers examine thoroughly not only the amount of taxes, but also the quantity and quality of public services they receive.

How can state/local tax policy be used to attract new residents and stimulate growth?

Tax policy’s main purpose is to shape economic behavior. For example, when economic behavior produces negative externalities (e.g., pollution), governments typically use high tax rates and fees to reduce damaging to the society effects. On the contrary, when economic behavior generates positive externalities (e.g., home ownership), deductions and credits are applied as an extra incentive.

Therefore, if a state or locality wants to stimulate its residential growth, it is imperative to target in tax policies that encourage people to make investments in the designated area. In Philadelphia for instance, the city provides 10-year tax abatement for individuals who rehab older homes. Such policy motivates people to move back into the city, rehab neglected properties and beautify neighborhoods, and set up the foundation for attracting more businesses (e.g., grocery stores, restaurants, retail shops).

How has the total amount families pay in state and local taxes changed as a result of the financial crisis?

All financial crises may have an impact on the performance of tax systems. But the timing of the impact depends upon the elasticity of the tax in question. For example, taxes with high elasticity (e.g., sales and income taxes) typically feel the impact of an economic crisis faster than taxes with low elasticity (e.g., property taxes). Simply, when economic uncertainty rises, individuals tend to restrict their consumption and hence commit less of their income into sales taxes. Economic crises also tend to increase unemployment and decelerate income growth. Thus, revenues from income taxes also tend to decrease.

However, property taxes as an inelastic tax are not affected immediately by recessions. Property taxes, among other factors, are based upon the assessed value of a property. Their performance, therefore, depends upon how often
localities reassess property values. During the Great Recession of 2008, not many localities across the U.S. performed reassessments, which helped them to maintain the performance of their property tax systems.

Should people pay taxes based on where they live or where they work?

Currently, most of us pay taxes both where we live and work. Usually, where we spend most of our time and receive most public services dictates the amount of taxes paid. Having said that, one should expect to pay more taxes where he/she lives, especially if he/she is also a property owner.

Methodology

In order to identify the states with the highest and lowest tax rates, WalletHub’s analysts compared the 50 states and the District of Columbia across four types of taxation:

Real-Estate Tax: We first divided the “Median Real-Estate Tax Amount Paid” by the “Median Home Price” in each state. We then applied the resulting rates to a house worth $178,600, the median value for a home in the U.S., in order to obtain the dollar amount paid as real-estate tax per household.

Vehicle Property Tax: We examined data for cities and counties collectively accounting for at least 50 percent of the state’s population and extrapolated this to the state level using weighted averages based on population size. For each state, we assumed all residents own the same car: a Toyota Camry LE four-door sedan, 2016’s highest-selling car, valued at $23,070, as of March 2017.

Sources: Data used to create this ranking were collected from the U.S. Census Bureau, Tax Foundation, Federation of Tax Administrators, American Petroleum Institute, National Automobile Dealers Association, each state’s Department of Motor Vehicles and WalletHub research.

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I would love to see their calculations for California; considering the state's sales tax rate (at least 7.5%) and income tax rate (8% for those earning $50K/year), I find it mathematically impossible that the overall tax burden is as low as this article indicates (and I'm not even considering their relatively high property taxes and gas excise taxes!)...

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@joleary

March 26, 2017

I found this study helpful. I would like more information on how each state taxes retirement income: Military Retirement, Retirement from a State other than resident state; Social Security Income. Also, does each State offer property or real estate tax discounts to Seniors and Veterans.

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@mark_schwerman

March 16, 2017

This was an interesting chart to browse. However, it is very misleading as Hawaii may be he lowest Property Tax state but it is also has the highest average home sale price. Property taxes are also calculated differently across the country. Each state may have a different method of determining the value of the home which will be used for taxes. One other aspect which is left out of this table is places that have county income taxes